EAGLE MATERIALS INC. EXECUTIVE SUMMARY
We are a leading manufacturer of heavy construction materials and light building materials inthe United States . Our primary products,Portland Cement and Gypsum Wallboard, are commodities that are essential in commercial and residential construction; public construction projects; and projects to build, expand, and repair roads and highways. Demand for our products is generally cyclical and seasonal, depending on economic and geographic conditions. We distribute our products throughout most ofthe United States , except the Northeast, which provides us with regional economic diversification. However, general economic downturns or localized downturns in the regions where we have operations may have a material adverse effect on our business, financial condition, and results of operations. Our business is organized into two sectors: Heavy Materials, which includes the Cement and Concrete and Aggregates segments; and Light Materials, which includes the Gypsum Wallboard and Recycled Paperboard segments. Financial results and other information for the three and nine months endedDecember 31, 2022 and 2021, are presented on a consolidated basis and by these business segments - Cement, Concrete and Aggregates, Gypsum Wallboard, and Recycled Paperboard. We conduct one of our cement operations through a joint venture,Texas Lehigh Cement Company LP , which is located inBuda, Texas (the Joint Venture). We own a 50% interest in the Joint Venture and account for our interest under the equity method of accounting. We proportionately consolidate our 50% share of the Joint Venture's Revenue and Operating Earnings in the presentation of our Cement segment, which is the way management organizes the segments within the Company for making operating decisions and assessing performance. All our business activities are conducted inthe United States . These activities include the mining of limestone for the manufacture, production, distribution, and sale of portland cement (a basic construction material that is the essential binding ingredient in concrete); the grinding and sale of slag; the mining of gypsum for the manufacture and sale of gypsum wallboard; the manufacture and sale of recycled paperboard to the gypsum wallboard industry and other paperboard converters; the sale of readymix concrete; and the mining and sale of aggregates (crushed stone, sand, and gravel). OnApril 22, 2022 , we completed the ConAgg Acquisition. The purchase price of the ConAgg Acquisition was approximately$120.2 million . The ConAgg Acquisition is included in our Heavy Materials sector, in the Concrete and Aggregates business segment. OnSeptember 16, 2022 , we acquired a cement distribution terminal located inNashville, Tennessee (the Terminal Acquisition). The purchase price of the Terminal Acquisition was approximately$39.5 million . The Terminal Acquisition is included in our Heavy Materials sector, in the Cement business segment.
See Footnote (C) in the Unaudited Consolidated Financial Statements for more information regarding the ConAgg Acquisition and the Terminal Acquisition.
MARKET CONDITIONS AND OUTLOOK
During the first nine months of fiscal 2023, our end markets generally remained resilient despite external challenges, such as transportation disruptions, supply chain constraints, and increasing interest rates and inflation. Construction activity in most of our regional markets continued to outpace the national average, and demand in our largest business lines remained strong during the three months endedDecember 31, 2022 , notwithstanding difficult weather conditions which affected our Cement sales volumes. 21 --------------------------------------------------------------------------------
Demand Outlook
The principal end-use market of cement is public infrastructure (i.e. roads, bridges, and highways). Our Cement business remains in a near sold-out position. We expect demand for cement to remain strong given the recovery in private non-residential construction; increased federal funding from theInfrastructure Investment and Jobs Act for infrastructure construction and repair projects during the latter half of this fiscal year and into calendar 2023; and continued high state budget allocations for additional infrastructure projects. Despite underlying demand growth, our ability to achieve further Cement sales volume growth from our existing facilities is limited, because our integrated cement sales network is operating at high utilization levels. The principal end use for gypsum wallboard is residential housing, consisting of new construction (both single-family and multi-family homes) as well as repair and remodel. Gypsum Wallboard shipments and orders currently remain steady, and we expect home construction backlogs to support demand in the near term. We recognize tighterU.S. fiscal policy, which has resulted in higher mortgage rates, will likely have some adverse impact on residential construction activity in the future; however, the magnitude and duration remains unclear at this time. Our Recycled Paperboard business sells paper primarily into the gypsum wallboard market, and demand for our paper generally follows the demand for gypsum wallboard.
Cost Outlook
We believe we are well-positioned to manage our cost structure and meet our customers' needs during the remainder of the fiscal year, despite rising inflation and increased transportation costs. Our substantial raw material reserves for our Cement, Aggregates, and Gypsum Wallboard businesses, and their proximity to our respective manufacturing facilities, support our low-cost producer position across all our business segments.
Energy and freight costs increased in all our businesses during fiscal 2022, as
well as the first nine months of fiscal 2023. While natural gas costs have
recently declined and freight costs have stabilized, we expect solid fuel and
electricity costs, which are the primary energy costs in manufacturing cement,
to increase in fiscal 2024.
The primary raw material used to produce paperboard is OCC. Prices for OCC
significantly increased during the prior year, but have recently declined. Our
current customer contracts for gypsum liner include price adjustments that
partially compensate for changes in raw material fiber prices. However, because
these price adjustments are not realized until future quarters, material costs
in our Gypsum Wallboard segment are likely to be lower in the period that these
price adjustments are realized.
22
--------------------------------------------------------------------------------RESULTS OF OPERATIONS
THREE MONTHS ENDEDDECEMBER 31, 2022 , Compared WITH THREE MONTHS ENDEDDECEMBER 31, 2021 For the Three Months Ended December 31, 2022 2021 Change (dollars in thousands, except per share) Revenue$ 511,487 $ 462,941 10 % Cost of Goods Sold (352,717 ) (324,355 ) 9 % Gross Profit 158,770 138,586 15 % Equity in Earnings of Unconsolidated Joint Venture 11,377 8,555 33 % Corporate General and Administrative Expense (12,497 ) (12,851 ) (3 )% Other Nonoperating Income 2,210 3,207 (31 )% Interest Expense, net (8,932 ) (5,651 ) 58 % Earnings Before Income Taxes 150,928 131,846 14 % Income Tax Expense (33,744 ) (29,367 ) 15 % Net Earnings$ 117,184 $ 102,479 14 % Diluted Earnings per Share$ 3.20 $ 2.53 26 % REVENUE Revenue increased by$48.6 million , or 10%, to$511.5 million for the three months endedDecember 31, 2022 . The ConAgg Acquisition contributed$9.8 million of Revenue during the three months endedDecember 31, 2022 . Excluding the ConAgg Acquisition, Revenue improved by$38.8 million , or 8%, largely because of higher gross sales prices of approximately$65.1 million , partially offset by lower Sales Volume of$26.3 million .
COST OF GOODS SOLD
Cost of Goods Sold increased by$28.3 million , or 9%, to$352.7 million for the three months endedDecember 31, 2022 . The ConAgg Acquisition contributed$10.1 million of Cost of Goods Sold during the three months endedDecember 31, 2022 . Excluding the ConAgg Acquisition, Cost of Goods Sold increased by$18.2 million , or 6%. The increase was due to higher operating costs of$38.0 million , partially offset by lower Sales Volume of$19.8 million . Higher operating costs were primarily related to our Cement and Gypsum Wallboard segments, which are discussed further in the segment analysis.
GROSS PROFIT
Gross Profit increased 15% to$158.8 million during the three months endedDecember 31, 2022 . The improvement was primarily related to higher gross sales prices, partially offset by lower Sale Volume and higher operating costs. The gross margin increased to 31%, with higher gross sales prices being partially offset by an increase in operating costs.
EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE
Equity in Earnings of our Unconsolidated Joint Venture increased$2.8 million , or 33%, for the three months endedDecember 31, 2022 . The increase was primarily due to higher to gross sales prices, which contributed$5.7 million to earnings. This was partially offset by lower Sales Volume and increased operating costs, which adversely affected earnings by approximately$1.7 million and$1.2 million , respectively. The increase in operating costs was primarily related to higher maintenance costs, which reduced operating earnings by$1.0 million . 23 --------------------------------------------------------------------------------
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE
Corporate General and Administrative Expense declined by approximately$0.4 million , or 3%, for the three months endedDecember 31, 2022 . The decrease was primarily due to lower insurance costs of approximately$0.6 million , partially offset by higher salary and incentive compensation expenses of$0.3 million . The increase in salary and incentive compensation was due to higher earnings in the third quarter of fiscal 2023. OTHER NONOPERATING INCOME Other Nonoperating Income consists of a variety of items that are unrelated to segment operations and include non-inventoried Aggregates income, asset sales, and other miscellaneous income and cost items.
INTEREST EXPENSE, NET
Interest Expense, net increased by approximately$3.2 million , or 58%, during the three months endedDecember 31, 2022 . The increase was primarily due to$3.6 million of interest expense in the current-year quarter related to higher interest rates and average balance outstanding under our Revolving Credit Facility. This was partially offset by higher interest income of$0.2 million . See Footnote (M) to the Unaudited Consolidated Financial Statements for more information. EARNINGS BEFORE INCOME TAXES Earnings Before Income Taxes increased to$150.9 million during the three months endedDecember 31, 2022 , primarily because of higher Gross Profit and Equity in Earnings of Unconsolidated Joint Venture. The increase was partially offset by higher Interest Expense, net and lower Other Nonoperating Income.
INCOME TAX EXPENSE
Income Tax Expense was$33.7 million for the three months endedDecember 31, 2022 , compared with$29.4 million for the three months endedDecember 31, 2021 . The effective tax rate remained flat at 22%.
NET EARNINGS
Net Earnings increased 14% to
24
--------------------------------------------------------------------------------RESULTS OF OPERATIONS
Nine MONTHS ENDEDDECEMBER 31, 2022 , Compared WITH Nine MONTHS ENDEDDECEMBER 31, 2021 For the Nine Months Ended December 31, 2022 2021 Change (dollars in thousands, except per share) Revenue$ 1,677,942 $ 1,448,405 16 % Cost of Goods Sold (1,174,067 ) (1,027,967 ) 14 % Gross Profit 503,875 420,438 20 % Equity in Earnings of Unconsolidated Joint Venture 23,631 24,785 (5 )% Corporate General and Administrative Expense (37,944 ) (32,986 ) 15 % Loss on Early Retirement of Senior Notes - (8,407 ) (100 )% Other Nonoperating Income 911 5,941 (85 )% Interest Expense, net (24,842 ) (24,891 ) (0 )% Earnings Before Income Taxes 465,631 384,880 21 % Income Tax Expense (104,447 ) (84,949 ) 23 % Net Earnings$ 361,184 $ 299,931 20 % Diluted Earnings per Share$ 9.66 $ 7.23 34 % REVENUE Revenue increased by$229.5 million , or 16%, to$1,677.9 million for the nine months endedDecember 31, 2022 . The ConAgg Acquisition contributed$34.7 million of Revenue during the nine months endedDecember 31, 2022 . Excluding the ConAgg Acquisition, Revenue improved by$194.8 million , or 13%, largely because of higher gross sales prices, which positively affected Revenue by$211.4 million . The increase was partially offset by lower Sales Volume, which negatively affected Revenue by$16.6 million .
COST OF GOODS SOLD
Cost of Goods Sold increased by$146.1 million , or 14%, to$1,174.1 million for the nine months endedDecember 31, 2022 . The ConAgg Acquisition contributed$33.4 million of Cost of Goods Sold during the nine months endedDecember 31, 2022 . Excluding the ConAgg Acquisition, Cost of Goods Sold increased by$112.7 million , or 11%. The increase was due to higher operating costs of$128.9 million , partially offset by lower Sales Volume of$16.2 million . Higher operating costs were primarily related to our Cement and Gypsum Wallboard segments, which are discussed further in the segment analysis.
GROSS PROFIT
Gross Profit increased 20% to$503.9 million during the nine months endedDecember 31, 2022 . The improvement was primarily related to higher gross sales prices and Sales Volume, partially offset by increased operating costs. The gross margin increased to 30%, with higher gross sales prices being partially offset by an increase in operating costs.
EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE
Equity in Earnings of our Unconsolidated Joint Venture declined$1.2 million , or 5%, for the nine months endedDecember 31, 2022 . The decrease was primarily due to lower Sales Volume and increased operating costs, which adversely affected earnings by approximately$3.7 million and$10.4 million , respectively. This was partially offset by higher gross sales prices, which contributed$12.9 million to earnings. The increase in operating costs was related to higher maintenance, energy, and purchased cement costs, which reduced operating earnings by$1.0 million ,$0.4 million , and$5.5 million , respectively. Additionally, extended equipment downtime in the fiscal second quarter reduced cement production, which increased operating costs by$2.3 million . 25 --------------------------------------------------------------------------------
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE
Corporate General and Administrative Expense increased by approximately$4.9 million , or 15%, for the nine months endedDecember 31, 2022 . The increase was primarily due to higher incentive compensation, information and technology upgrades, and legal and professional expenses of$3.0 million ,$0.9 million , and$0.4 million , respectively. The increase in incentive compensation was mostly due to executive retirements during the first quarter of fiscal 2023, while the increase in legal and professional expenses was primarily related to the Terminal Acquisition.
LOSS ON EARLY RETIREMENT OF SENIOR NOTES
InJuly 2021 , the Company redeemed and retired its 4.500% Senior Unsecured Notes due in 2026 prior to the maturity date. As a result of the early retirement, the Company paid a premium of$8.4 million . See Footnote (M) to the Unaudited Consolidated Financial Statements for more information.
OTHER NONOPERATING INCOME
Other Nonoperating Income consists of a variety of items that are unrelated to segment operations and include non-inventoried Aggregates income, asset sales, and other miscellaneous income and cost items.
INTEREST EXPENSE, NET
Interest Expense, net was relatively flat during the nine months endedDecember 31, 2022 . Interest Expense related to our Revolving Credit Facility increased$9.3 million , due to increased borrowings and higher interest rates. This was offset by prior year interest expense related to loan amortization costs of$7.0 million , which included the write off of approximately$6.1 million of debt issue costs related to our 4.500% Unsecured Senior Notes due in 2026 and the Term Loan Credit Agreement, and$2.2 million of interest expense related to our Term Loan, which was repaid inJuly 2021 . See Footnote (M) to the Unaudited Consolidated Financial Statements for more information.
EARNINGS BEFORE INCOME TAXES
Earnings Before Income Taxes increased to$465.6 million during the nine months endedDecember 31, 2022 , primarily because of higher Gross Profit. This was partially offset by higher Corporate General and Administrative Expense and lower Equity in Earnings of Unconsolidated Joint Venture and Other Nonoperating Income. INCOME TAX EXPENSE Income Tax Expense was$104.4 million for the nine months endedDecember 31, 2022 , compared with$84.9 million for the nine months endedDecember 31, 2021 . The effective tax rate remained consistent with the prior-year period at 22%.
NET EARNINGS
Net Earnings increased 20% to
26
--------------------------------------------------------------------------------
Three AND Nine MONTHS ENDED
The following presents results within our two business sectors for the three and nine months endedDecember 31, 2022 , and 2021. Revenue and operating results are organized by sector and discussed by individual business segment within each respective business sector. Heavy Materials CEMENT (1) For the Three Months Ended For the Nine Months Ended December 31, December 31, 2022 2021 Percentage Change 2022 2021 Percentage Change (in thousands, except per ton (in thousands, except per ton information) information) Gross Revenue, including Intersegment and Joint Venture$ 256,313 $ 261,155 (2 )%$ 860,289 $ 819,734 5 % Less Intersegment Revenue (7,719 ) (5,301 ) 46 % (26,371 ) (18,357 ) 44 % Less Joint Venture Revenue (27,620 ) (27,406 ) 1 % (79,065 ) (77,023 ) 3 % Gross Revenue, as reported$ 220,974 $ 228,448 (3 )%$ 754,853 $ 724,354 4 % Freight and Delivery Costs billed to Customers (12,910 ) (12,849 ) - (48,922 ) (51,501 ) (5 )% Net Revenue$ 208,064 $ 215,599 (3 )%$ 705,931 $ 672,853 5 % Sales Volume (M Tons) 1,699 1,963 (13 )% 5,837 6,197 (6 )% AverageNet Sales Price , per ton (2)$ 134.36 $ 118.44 13 %$ 131.44 $ 117.49 12 % Operating Margin, per ton$ 42.56 $ 40.67 5 %$ 39.99 $ 37.30 7 % Operating Earnings$ 72,315 $ 79,836 (9 )%$ 233,442 $ 231,133 1 %
(1) Total of wholly owned subsidiaries and proportionately consolidated 50% interest of the Joint Venture's results. (2) Net of freight per ton, including Joint Venture.
Three months ended
Cement Revenue was$256.3 million , a 2% decrease, for the three months endedDecember 31, 2022 . The decline was primarily due to lower Sale Volume, which reduced Cement Revenue by approximately$32.0 million , partially offset by higher gross sales prices, which increased Revenue by$27.1 million . Cement Operating Earnings decreased$7.5 million to$72.3 million for the three months endedDecember 31, 2022 . The decline was due to lower Sales Volume of$10.7 million and higher operating costs of$23.9 million . This was partially offset by higher gross sales prices, which increased Operating Earnings by$27.1 million . Cement Sales Volume was affected by lower cement inventory levels compared with the prior-year period as well as difficult weather conditions during this quarter. The increase in operating costs was primarily due to higher energy and maintenance costs of approximately$10.7 million and$6.5 million , respectively. Operating Margin declined to 28% primarily because of higher operating costs, partially offset by higher gross sales prices.
Nine months ended
Cement Revenue was$860.3 million , a 5% increase, for the nine months endedDecember 31, 2022 . The increase was primarily due to higher gross sales prices, which improved Cement Revenue by approximately$78.8 million , partially offset by lower Sales Volume, which reduced Revenue by$38.2 million . Cement Operating Earnings increased$2.3 million to$233.4 million for the nine months endedDecember 31, 2022 . The increase was due to higher gross sales prices of$78.8 million . This was partially offset by lower Sales Volume of$13.6 million and higher operating costs of$62.9 million . Most of the decline in Sales Volume was in the fiscal third quarter, and was primarily due to factors described above. The increase in operating costs was primarily due to higher energy and maintenance costs of approximately$37.4 million and$21.3 million , respectively. Operating Margin decreased to 27%, primarily because of higher operating costs, partially offset by higher gross sales prices. 27 --------------------------------------------------------------------------------
CONCRETE AND AGGREGATES
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
2022 2021 Percentage Change 2022 2021 Percentage Change
(in thousands, except net (in thousands, except net sales
sales prices) prices)
Gross Revenue, as reported $ 55,176 $ 42,384 30 % $ 186,407 $ 139,888 33 %
Sales Volume
M Cubic Yards of Concrete 353 317 11 % 1,210 1,063 14 %
M Tons of Aggregate 626 341 84 % 2,333 1,183 97 %
Average Net Sales Price
Concrete - Per Cubic Yard $ 134.42 $ 122.36 10 % $ 132.46 $ 120.17 10 %
Aggregates - Per Ton $ 11.70 $ 10.38 13 % $ 11.21 $ 10.25 9 %
Operating Earnings $ 2,692 $ 4,115 (35 )% $ 15,700 $ 16,998 (8 )%
Three months ended
Concrete and Aggregates Revenue increased 30% to$55.2 million for the three months endedDecember 31, 2022 . The ConAgg Acquisition contributed$9.8 million of Revenue during the three months endedDecember 31, 2022 . Excluding the ConAgg Acquisition, Revenue increased by$3.0 million , or 7%. The increase was due to higher gross sales prices, which improved Revenue by$3.8 million , partially offset by lower Sales Volume, primarily in Concrete, of$0.8 million . Operating Earnings decreased 35% to approximately$2.7 million . Segment results above include$4.4 million of depreciation and amortization, of which$2.1 million is related to the ConAgg Acquisition. Excluding the ConAgg Acquisition, Operating Earnings were$3.0 million . The decrease in Operating Earnings was due to increased operating costs and lower Sales Volume of$4.8 million and$0.1 million , respectively. This was partially offset by higher gross sales prices of$3.8 million . The increase in operating costs was primarily due to higher expenses for materials, maintenance, and delivery of approximately$3.3 million ,$1.2 million , and$0.4 million , respectively.
Nine months ended
Concrete and Aggregates Revenue increased 33% to$186.4 million for the nine months endedDecember 31, 2022 . The ConAgg Acquisition contributed$34.7 million of Revenue during the nine months endedDecember 31, 2022 . Excluding the ConAgg Acquisition, Revenue was up 9% or$11.8 million . The increase was due to higher gross sales prices and Sales Volume in Aggregates, of$12.9 million and$1.1 million , respectively, partially offset by lower Sales Volume in Concrete of$2.2 million . Operating Earnings decreased 8% to approximately$15.7 million . Excluding the ConAgg Acquisition, Operating Earnings decreased by$2.6 million to$14.4 million . The decline in Operating Earnings was due to increased operating costs of$15.7 million . This was partially offset by higher gross sales prices of$12.9 million . The increase in operating costs was primarily due to higher expenses for materials, maintenance, and delivery of approximately$9.1 million ,$3.2 million , and$3.2 million , respectively. 28 -------------------------------------------------------------------------------- Light Materials GYPSUM WALLBOARD For the Three Months Ended For the Nine Months Ended December 31, December 31, 2022 2021 Percentage Change 2022 2021 Percentage Change (in thousands, except per MSF (in thousands, except per MSF information) information) Gross Revenue, as reported$ 212,016 $ 163,584 30 %$ 652,981 $ 502,836 30 % Freight and Delivery Costs billed to Customers (38,238 ) (30,642 ) 25 % (121,778 ) (94,427 ) 29 % Net Revenue$ 173,778 $ 132,942 31 %$ 531,203 $ 408,409 30 % Sales Volume (MMSF) 728 695 5 % 2,309 2,194 5 % AverageNet Sales Price , per MSF (1)$ 238.51 $ 191.41 25 %$ 230.01 $ 186.16 24 % Freight, per MSF$ 52.52 $ 44.09 19 %$ 52.74 $ 43.04 23 % Operating Margin, per MSF$ 119.97 $ 87.54 37 %$ 113.11 $ 86.79 30 % Operating Earnings$ 87,335 $ 60,841 44 %$ 261,164 $ 190,425 37 %
(1) Net of freight per MSF.
Three months ended
Gypsum Wallboard Revenue was up 30% to$212.0 million for the three months endedDecember 31, 2022 . The increase was due to higher gross sales prices and Sales Volume, which contributed approximately$40.7 million and$7.7 million , respectively. Our market share remained relatively consistent during the three months endedDecember 31, 2022 . Operating Earnings increased 44% to$87.3 million , primarily because of higher gross sales prices and Sales Volume of approximately$40.7 million and$2.9 million , respectively. This was partially offset by higher operating costs of approximately$17.1 million . The higher operating costs were primarily related to freight, energy, and raw materials, which reduced Operating Earnings by approximately$6.3 million ,$1.3 million , and$5.6 million , respectively. Operating Margin increased to 41%, primarily because of higher gross sales prices, partly offset by higher operating costs. Fixed costs are not a significant portion of the overall cost of wallboard; therefore, changes in utilization have a relatively minor impact on our operating cost per unit.
Nine months ended
Gypsum Wallboard Revenue increased 30% to$653.0 million for the nine months endedDecember 31, 2022 . The increase was due to higher gross sales prices and Sales Volume, which contributed approximately$123.8 million and$26.4 million , respectively. Our market share remained relatively consistent during the nine months endedDecember 31, 2022 . Operating Earnings increased 37% to$261.2 million , primarily because of higher gross sales prices and Sales Volume of approximately$123.8 million and$10.0 million , respectively. This was partially offset by higher operating costs of approximately$63.0 million . The higher operating costs were primarily related to freight, energy, and raw materials, which reduced Operating Earnings by approximately$22.9 million ,$10.9 million , and$22.3 million , respectively. Operating Margin increased to 40%, primarily because of higher gross sales prices, partly offset by higher operating costs. Fixed costs are not a significant portion of the overall cost of wallboard; therefore, changes in utilization have a relatively minor impact on our operating cost per unit. 29 --------------------------------------------------------------------------------
RECYCLED PAPERBOARD
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
2022 2021 Percentage Change 2022 2021 Percentage Change
(in thousands, except per ton (in thousands, except per ton
information) information)
Gross Revenue, including
intersegment $ 47,774 $ 49,763 (4 )% $ 155,520 $ 140,828 10 %
Less intersegment Revenue (24,453 ) (21,238 ) 15 % (71,819 ) (59,501 ) 21 %
Gross Revenue, as reported $ 23,321 $ 28,525 (18 )% $ 83,701 $ 81,327 3 %
Freight and Delivery Costs
billed to Customers (2,007 ) (2,120 ) (5 )% (7,025 ) (5,691 ) 23 %
Net Revenue $ 21,314 $ 26,405 (19 )% $ 76,676 $ 75,636 1 %
Sales Volume (M Tons) 77 81 (5 )% 246 252 (2 )%
Average Net Sales Price , per
ton (1) $ 594.93 $ 585.54 2 % $ 603.73 $ 535.55 13 %
Freight, per ton $ 26.06 $ 26.17 - $ 28.56 $ 22.58 26 %
Operating Margin, per ton $ 101.36 $ 29.00 250 % $ 69.92 $ 26.46 164 %
Operating Earnings $ 7,805 $ 2,349 232 % $ 17,200 $ 6,667 158 %
(1) Net of freight per ton.
Three months ended
Recycled Paperboard Revenue decreased 4% to$47.8 million during the three months endedDecember 31, 2022 . The decrease was primarily due to lower Sales Volume, which negatively affected Revenue by$2.7 million . This was partially offset by higher gross sales prices, which positively affected Revenue by$0.7 million . Higher gross sales prices were related to the pricing provisions in our long-term sales agreements. Operating Earnings increased 232% to$7.8 million , primarily because of higher gross sales prices and lower operating costs of$0.7 million and$4.8 million , respectively. This was partially offset by lower Sales Volume, of$0.1 million . The decrease in operating costs was primarily related to lower fiber costs of$9.0 million . This was partially offset by higher input costs, namely energy, chemicals, maintenance, and freight, which lowered Operating Earnings by approximately$1.3 million ,$1.1 million ,$0.6 million , and$0.6 million , respectively. Operating Margin increased to 16% because of higher gross sales prices and lower operating costs. Although the Company has certain pricing provisions in its long-term sales agreements, prices are only adjusted at certain times throughout the year, so price adjustments are not always reflected in the same period as the change in costs.
Nine months ended
Recycled Paperboard Revenue increased 10% to$155.5 million during the nine months endedDecember 31, 2022 . The increase was primarily due to higher gross sales prices, which positively affected Revenue by$18.3 million , partially offset by lower Sales Volume of$3.6 million . Higher gross sales prices were related to the pricing provisions in our long-term sales agreements. Operating Earnings increased 158% to$17.2 million , primarily because of higher gross sales prices, of$18.3 million . This was partially offset by higher operating costs and lower Sales Volume, which reduced Operating Earnings by approximately$7.4 million and$0.2 million , respectively. The increase in operating costs was primarily related to higher input costs, namely energy, chemicals, as well as freight and maintenance, which lowered Operating Earnings by approximately$5.1 million ,$3.2 million ,$3.5 million and$0.8 million , respectively. This was partially offset by lower fiber costs of$6.6 million . Operating Margin increased to 11% because of higher gross sales prices, partially offset by higher operating costs. Although the Company has certain pricing provisions in its long-term sales agreements, prices are only adjusted at certain times throughout the year, so price adjustments are not always reflected in the same period as the change in costs. 30 --------------------------------------------------------------------------------
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with accounting principles generally accepted inthe United States requires management to adopt accounting policies and make significant judgments and estimates to develop amounts disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare our financial statements. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information. Information regarding our Critical Accounting Policies can be found in our Annual Report. The three Critical Accounting Policies that we believe either require the use of the most judgment, or the selection or application of alternative accounting policies, and are material to our financial statements, are those related to long-lived assets, goodwill, and business combinations. Management has discussed the development and selection of these Critical Accounting Policies and estimates with the Audit Committee of our Board of Directors and with our independent registered public accounting firm. In addition, Note (A) to the financial statements in our Annual Report contains a summary of our significant accounting policies.
Recent Accounting Pronouncements
Refer to Footnote (A) in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q for information regarding recently issued accounting pronouncements that may affect our financial statements.
LIQUIDITY AND CAPITAL RESOURCES
We believe at this time that we have access to sufficient financial resources
from our liquidity sources to fund our business and operations, including
contractual obligations, capital expenditures, and debt service obligations for
at least the next twelve months. We regularly monitor any potential disruptions
to the economy, and to our operations, particularly changing fiscal policy or
economic conditions affecting our industries. Please see the Debt Financing
Activities section below for a discussion of our Revolving Credit Facility and
the amount of borrowings available to us in the next twelve-month period.
31
--------------------------------------------------------------------------------Cash Flow
The following table provides a summary of our cash flows:
For the Nine Months Ended December 31,
2022 2021
(dollars in thousands)
Net Cash Provided by Operating Activities $ 480,111 $ 428,878
Investing Activities
Additions to Property, Plant, and Equipment (60,951 ) (55,188 )
Acquisition Spending (158,451 ) -
Net Cash Used in Investing Activities (219,402 ) (55,188 )
Financing Activities
Borrowings Under Revolving Credit Facility 200,000 100,000
Repayment of Borrowings Under Revolving Credit
Facility (70,000 ) -
Proceeds from 2.500% Senior Unsecured Notes - 743,692
Repayment of 4.500% Senior Unsecured Notes - (350,000 )
Repayment of Term Loan and Term Loan Credit
Agreement (5,000 ) (665,000 )
Dividends Paid to Stockholders (28,421 ) (20,538 )
Purchase and Retirement of Common Stock (313,898 ) (435,975 )
Proceeds from Stock Option Exercises 840 20,754
Loss on Early Retirement of Senior Notes - (8,407 )
Payment of Debt Issuance Costs (903 ) (7,985 )
Shares Redeemed to Settle Employee Taxes on Stock
Compensation (1,806 ) (1,359 )
Net Cash Used in Financing Activities (219,188 ) (624,818 )
Net Increase (Decrease) in Cash and Cash
Equivalents $ 41,521 $ (251,128 )
Net Cash Provided by Operating Activities increased by $51.2 million to $480.1
million during the nine months ended December 31, 2022 . This increase was
primarily attributable to higher Net Earnings, adjusted for noncash charges, of
approximately $61.1 million . This was partially offset by changes in working
capital of $8.1 million and lower dividends from our Unconsolidated Joint
Venture of $1.8 million .
Working capital increased by $47.9 million to $283.0 million at December 31,
2022 , compared with March 31, 2022 . The increase was due to higher Cash and Cash
Equivalents and Inventories of approximately $41.5 million and $10.5 million ,
respectively, as well as lower Accounts Payable and Accrued Liabilities of $10.1
million . This was partially offset by lower Accounts and Notes Receivable, net,
and Current Portion of Long-term Debt of $3.8 million and $10.0 million ,
respectively. The increase in inventory was due to our normal sales cycle in
which we build inventory in the winter months to meet demand in the spring and
summer. The ConAgg Acquisition in April 2022 increased working capital by
approximately $2.7 million at December 31, 2022 .
The $3.8 million decline in Accounts Receivable was primarily related to
increased collection efforts during the three months ended December 31, 2022 . As
a percentage of quarterly sales generated for the respective quarter, Accounts
Receivable was approximately 34% at December 31, 2022 , and 43% at March 31,
2022 . Accounts Receivable related to the ConAgg Acquisition at December 31,
2022 , was approximately $4.8 million . Management measures the change in Accounts
Receivable by monitoring the days sales outstanding on a monthly basis to
determine if any deterioration has occurred in the collectability of the
Accounts Receivable. No significant deterioration in the collectability of our
Accounts Receivable was identified at December 31, 2022 . Notes Receivable are
monitored on an individual basis, and no significant deterioration in the
collectability of our Notes Receivable was identified at December 31, 2022 .
32
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Our Inventory balance at December 31, 2022 , increased by approximately $10.5
million from our balance at March 31, 2022 . Excluding the ConAgg Acquisition,
whose inventory consists mostly of Aggregates, our Inventory balance increased
by $7.2 million . Within Inventory, Repair Parts and Gypsum Wallboard Inventory
increased by $14.8 million and $3.3 million , respectively. These increases were
partially offset by lower Raw Materials and Materials-in-Progress of
approximately $9.2 million and Finished Cement Inventory, of approximately $3.2
million . The decline in Raw Materials and Materials-in-Progress and Finished
Cement is consistent with our business cycle; we generally build up clinker
inventory over the winter months to meet the demand for cement in the spring and
summer. The increase in Repair Parts inventory was primarily due to the build-up
of inventory necessary for our scheduled outages over the next several months.
The largest individual balance in our Inventory is our repair parts. These parts
are necessary given the size and complexity of our manufacturing plants, as well
as the age of certain of our plants, which creates the need to stock a high
level of Repair Parts Inventory. We believe all of these repair parts are
necessary, and we perform semi-annual analyses to identify obsolete parts. We
have less than one year's sales of all product inventories, and our inventories
have a low risk of obsolescence because our products are basic construction
materials.
Net Cash Used in Investing Activities during the nine months ended December 31,
2022 , was approximately $219.4 million , compared with $55.2 million during the
same period in 2021, an increase of approximately $164.2 million . The increase
was primarily related to the Acquisition Spending of $158.5 million for the
ConAgg Acquisition and the Terminal Acquisition in fiscal 2023. The remaining
increase was primarily due to the purchase of reserves for our Concrete and
Aggregates business.
Net Cash Used In Financing Activities was approximately $219.2 million during
the nine months ended December 31, 2022 , compared with $624.8 million during the
nine months ended December 31, 2021 . The $405.6 million decrease was primarily
related to higher borrowings, net of repayments, of $296.3 million and lower
amounts paid for early termination of debt, debt issuance costs, and share
repurchases of $8.4 million , $7.1 million , and $122.1 million , respectively.
This was partially offset by increases in Dividends Paid to Shareholders of $7.9
million and lower proceeds from exercise of stock options of $20.0 million .
Our debt-to-capitalization ratio and net-debt-to-capitalization ratio were 48.0%
and 46.5%, respectively, at December 31, 2022 , compared with 45.6% and 45.1%,
respectively, at March 31, 2022 .
Debt Financing Activities
Below is a summary of the Company's outstanding debt facilities atDecember 31, 2022 : Maturity Revolving Credit FacilityMay 2027 Term LoanMay 2027
2.500% Senior Unsecured Notes
See Footnote (M) to the Unaudited Consolidated Financial Statements for further details on the Company's debt facilities, including interest rate, and financial and other covenants and restrictions. The borrowing capacity of our Revolving Credit Facility is$750.0 million untilMay 5, 2027 . The Revolving Credit Facility also includes a swingline loan sublimit of$25.0 million , and a$40.0 million letter of credit facility. AtDecember 31, 2022 , we had$130.0 million outstanding under the Revolving Credit Facility and$6.4 million of outstanding letters of credit, leaving us with$613.6 million of available borrowings under the Revolving Credit Facility, net of the outstanding letters of credit. We are contingently liable for performance under$26.9 million in performance bonds relating primarily to our mining operations. We do not have any off-balance sheet debt, or any outstanding debt guarantees. Other than the Revolving Credit Facility, we have no additional source of committed external financing in place. Should the Revolving Credit Facility be terminated, no assurance can be given as to our ability to secure a new source of financing. Consequently, if any balance were outstanding on the Revolving Credit Facility at the time of 33 --------------------------------------------------------------------------------
termination, and an alternative source of financing could not be secured, it could have a material adverse impact on our business.
We believe that our cash flow from operations and available borrowings under our Revolving Credit Facility, as well as cash on hand, should be sufficient to meet our currently anticipated operating needs, capital expenditures, and dividend and debt service requirements for at least the next 12 months. However, our future liquidity and capital requirements may vary depending on a number of factors, including market conditions in the construction industry, our ability to maintain compliance with covenants in our Revolving Credit Facility, the level of competition, and general and economic factors beyond our control, such as COVID-19 or similar pandemics. These and other developments could reduce our cash flow or require that we seek additional sources of funding. We cannot predict what effect these factors will have on our future liquidity. As market conditions warrant, the Company may from time to time seek to purchase or repay its outstanding debt securities or loans, including the 2.500% Senior Unsecured Notes, Term Loan, and borrowings under the Revolving Credit Facility, in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any purchases we make may be funded by the use of cash on our balance sheet or the incurrence of new debt. The amounts involved in any such purchase transactions, individually or in aggregate, may be material.
We had approximately
Dividends
Dividends paid were$28.4 million and$20.5 million for the nine months endedDecember 31, 2022 and 2021, respectively. OnMay 19, 2021 , we announced the reinstatement of our quarterly dividend which had been suspended in fiscal 2021. Each quarterly dividend payment is subject to review and approval by our Board of Directors, who will continue to evaluate our dividend payment amount on a quarterly basis. Share Repurchases During the three and nine months endedDecember 31, 2022 , our share repurchases were as follows: Total Number Maximum of Number Shares of Shares Purchased that May as Part of Yet be Total Number Publicly Purchased of Average Announced Under the Shares Price Paid Plans Plans Period Purchased Per Share or Programs or Programs April 1 through April 30, 2022 296,000$ 124.41 296,000 May 1 through May 31, 2022 294,000 124.72 294,000 June 1 through June 30, 2022 294,000 121.86 294,000 Quarter 1 Totals 884,000$ 124.00 884,000 July 1 through July 31, 2022 280,000$ 115.46 280,000 August 1 through August 31, 2022 308,000 128.93
308,000
September 1 through September 30, 2022 252,000 114.08
252,000
Quarter 2 Totals 840,000$ 119.98
840,000
October 1 through October 31, 2022 276,000$ 113.96
276,000
265,813
281,975
Quarter 3 Totals 823,788$ 125.64
823,788
Year-to-Date Totals 2,547,788$ 123.20
2,547,788 8,275,204
OnMay 17, 2022 , the Board of Directors authorized us to repurchase an additional 7.5 million shares. This authorization brought the cumulative total of Common Stock our Board has approved for repurchase in the open market to 55.9 million shares since we became publicly held inApril 1994 . ThroughDecember 31, 2022 , we have repurchased approximately 47.6 million shares. 34 -------------------------------------------------------------------------------- Share repurchases may be made from time to time in the open market or in privately negotiated transactions. The timing and amount of any share repurchases are determined by management, based on its evaluation of market and economic conditions and other factors. In some cases, repurchases may be made pursuant to plans, programs, or directions established from time to time by the Company's management, including plans intended to comply with the safe-harbor provided by Rule 10b5-1. The Inflation Reduction Act of 2022 added a provision imposing a 1% excise tax on the fair value of stock repurchases by companies beginningJanuary 1, 2023 . We do not expect taxes due on future repurchases of our shares to have a material effect on our business. During the nine months endedDecember 31, 2022 , the Company withheld from employees 13,317 shares of stock upon the vesting of Restricted Shares that were granted under the Plan. We withheld these shares to satisfy the employees' statutory tax withholding requirements, which is required once the Restricted Shares or Restricted Share Units are vested.
Capital Expenditures
The following table details capital expenditures by category:
For the Nine Months Ended December 31,
2022 2021
(dollars in thousands)
Land and Quarries $ 11,178 $ 5,306
Plants 33,650 30,026
Buildings, Machinery, and Equipment 16,123 10,209
Total Capital Expenditures $ 60,951 $ 45,541
Capital expenditures for fiscal 2023 are expected to range from $90.0 million to
$100.0 million and will be allocated across both Heavy Materials and Light
Materials sectors. These estimated capital expenditures will include maintenance
capital expenditures and improvements, as well as other safety and regulatory
projects.
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FORWARD LOOKING STATEMENTS
Certain matters discussed in this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when the Company is discussing its beliefs, estimates or expectations. These statements are not historical facts or guarantees of future performance but instead represent only the Company's belief at the time the statements were made regarding future events which are subject to certain risks, uncertainties and other factors, many of which are outside the Company's control. Actual results and outcomes may differ materially from what is expressed or forecast in such forward-looking statements. The principal risks and uncertainties that may affect the Company's actual performance include the following: the cyclical and seasonal nature of the Company's businesses; public infrastructure expenditures; adverse weather conditions; the fact that our products are commodities and that prices for our products are subject to material fluctuation due to market conditions and other factors beyond our control; availability of raw materials; changes in the costs of energy, including, without limitation, electricity, natural gas, coal and oil, and the nature of our obligations to counterparties under energy supply contracts, such as those related to market conditions (such as fluctuations in spot market prices), governmental orders and other matters; changes in the cost and availability of transportation; unexpected operational difficulties, including unexpected maintenance costs, equipment downtime and interruption of production; material nonpayment or non-performance by any of our key customers; inability to timely execute announced capacity expansions; difficulties and delays in the development of new business lines; governmental regulation and changes in governmental and public policy (including, without limitation, climate change and other environmental regulation); possible outcomes of pending or future litigation or arbitration proceedings; changes in economic conditions specific to any one or more of the Company's markets; adverse impact of severe weather conditions (such as winter storms, tornados and hurricanes) on our facilities, operations and contractual arrangements with third parties; cyber-attacks or data security breaches; announced increases in capacity in the gypsum wallboard and cement industries; changes in the demand for residential housing construction or commercial construction or construction projects undertaken by state or local governments; the availability of acquisitions or other growth opportunities that meet our financial return standards and fit our strategic focus; risks related to pursuit of acquisitions, joint ventures and other transactions or the execution or implementation of such transactions, including the integration of operations acquired by the Company; general economic conditions; and interest rates. For example, increases in interest rates, decreases in demand for construction materials or increases in the cost of energy (including, without limitation, electricity, natural gas, coal and oil) and the cost of our raw materials could affect the revenue and operating earnings of our operations. In addition, changes in national or regional economic conditions and levels of infrastructure and construction spending could also adversely affect the Company's result of operations. Finally, any forward-looking statements made by the Company are subject to the risks and impacts associated with natural disasters, pandemics or other unforeseen events, including, without limitation, any resurgence of the COVID-19 pandemic and responses thereto designed to contain its spread and mitigate its public health effects, as well as their impact on economic conditions, capital and financial markets. These and other factors are described in the Company's Annual Report on Form 10-K for the fiscal year endedMarch 31, 2022 . All forward-looking statements made herein are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed herein will increase with the passage of time. The Company undertakes no duty to update any forward-looking statement to reflect future events or changes in the Company's expectations. 36
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